Will Backfire Against Oil Giant In Courts Around World

Washington, DC – A secret "order" issued Thursday from a private investor arbitration panel purporting to freeze a nine-year environmental litigation against Chevron in Ecuador violates international law and will have little or no impact on any potential enforcement action against the oil giant in countries around the world, said representatives of the plaintiffs.

The latest move by the three-person investor arbitration panel, issued after a hearing over the weekend that barred the rainforest communities of Ecuador from appearing, ordered Ecuador's government to take "all necessary steps" to block enforcement of an $18 billion judgment against Chevron that was affirmed on appeal in early January following a nine-year civil trial, according to a source in the American law firm Winston & Strawn, which represents Ecuador's government.

"This arbitration panel has just lost the last remnants of its legitimacy by trying to order a sovereign nation to violate its own Constitution and quash the legal claims of citizens who are literally dying off in the rainforest due to Chevron's pollution," said Karen Hinton, the U.S. spokesperson for the 30,000 Ecuadorians who won the judgment against the oil giant.

"The latest order will have no legal impact in Ecuador or in any country around the world that observes the rule of law," Hinton added. "The United States would never abide by such a ruling; nor will Ecuador or any other country that has a system based on due process of law."

The judgment against Chevron in Ecuador was based on overwhelming scientific evidence that the oil giant dumped billions of gallons of toxic waste into the Amazon, decimating indigenous groups and causing an outbreak of cancer and other oil-related diseases. The trial against Chevron was shifted in 2002 from U.S. federal court to Ecuador at Chevron's request, where the company promised to abide by any adverse judgment.

Because Chevron stripped its assets from Ecuador, the rainforest communities are being forced to consider standard collection actions around the world against the oil giant's assets. It was the possibility of initiating enforcement actions against Chevron that prompted the panel to try to freeze the case in a last-gasp effort to help the oil giant, said Hinton.

The panel – composed of three highly-paid private lawyers – simply does not have the authority to review a private litigation in the public court system of a sovereign nation, according to Ecuador's government, a growing chorus of international law jurists and a petition filed by the rainforest communities before a noted human rights court. See here, here and here.

One of the three panelists, Horacio Grigera Noan, has consistently ruled against the government of Ecuador in five other international investor arbitrations where he was appointed on the advice of King & Spalding, Chevron's American law firm, said Hinton. In fact, Grigera Noan violated his oath as an arbitrator by agreeing to be appointed to the current arbitration without disclosing his conflicts of interest with Chevron and King & Spalding and therefore should be disqualified, said Hinton.

"It is clear that Grigera Noan is not independent as required by the arbitral rules," said Hinton.

The latest move represents the first time in the history of investor-State arbitrations that a panel has tried to order a sovereign nation to interfere with a court case involving private litigants, said Aaron M. Page, an international environmental and human rights lawyer and co-author of a law review article critical of the investor arbitration panels.

"This latest decision has almost no chance of being respected in any public court system anywhere," said Page. "It essentially renders the Ecuadorian indigenous communities stateless for purposes of exercising their legal rights.

"It also sends a frightening signal to sovereigns around the world that there is a group of private arbitrators who think they have some sort of veto power over public court systems worldwide," he added. "No country in the world would accept such a notion, and no treaty authorizes such a radical conception of arbitral power."

The "decision" from the panel also violates various provisions of Ecuador's Constitution – which prohibits interference in its court system – as well as several international treaties that obligate the government of Ecuador to protect the rights of its citizens to seek legal redress through the courts, said Pablo Fajardo, the lead lawyer for the Ecuadorian indigenous and farmer communities who won the landmark judgment.

There is no expectation that Ecuador will actually comply with the arbitral panel given that carrying it out would be illegal under the nation's laws, said Page. Most governments, including the United States, simply ignore decisions from international courts that purport to order them to interfere with pending litigation in their court systems, he added.

The arbitral panel convened by Chevron bars the rainforest communities from appearing before it, does not publish its decisions, and does not inform the public about when and where it meets, said Hinton. Further, each panelist stands to reap millions of dollars in fees paid in part by Chevron simply by granting jurisdiction over the case when there is little if any basis to do so.

Ecuador's government has argued that the oil giant has no right to even file the claim under the BIT given that the treaty did not take effect until 1997, or five years after Chevron left the country.

Chevron's attempt to use the arbitration to undermine the rule of law prompted renowned Latin American jurist Jose Daniel Amado to send a letter to U.N. Secretary General Ban Ki-moon asking for a review of what he called an "improper and illegal expansion of arbitral powers" by the panel. See here and here. The Amado letter gained immediate support from jurists around the world, who sent a separate letter backing Amado's arguments to the U.N. official in charge of international arbitration, Renaud Souriel.

In the meantime, the three lawyers who serve as arbitrators – Grigera Naon, Vaughn Lowe, and V.V. Veeder – were blasted last week by civil society organizations for illegally interfering in the Ecuador trial. All have refused demands to disclose how much they are charging for their services.

Grigera Noan, an Argentine who lives in the United States, repeatedly has been appointed to investor arbitration panels by the Chevron law firm King & Spalding in cases where the government of Ecuador is a defendant. Grigera Noan has never ruled in favor of Ecuador, and on two occasions he wrote highly unusual dissenting opinions where Ecuador won to position himself to be appointed by Chevron in the current arbitration, said Hinton.

"An analysis of Grigera's rulings shows he has never ruled against a King & Spalding client," said Hinton. "The man simply has no independence."